Solution Manual For Financial Accounting Theory 7th Edition by William R. Scott, Patricia O'Brien Chapters 1 - 13, Complete

INSTRUCTOR’S SOLUTIONS MANUAL m m




for



Financial Accounting m m




Theory
Seventh Edition m




William R. Scott m m


University of Waterloo
m m




Toronto

Copyrightm©m2015mPearsonmCanadamInc.,mToronto,mOntario.mAllmrightsmreserved.mThismworkmismprotectedmbymCanadian
mcopyrightmlawsmandmismprovidedmsolelymformthemusemofminstructorsminmteachingmtheirmcoursesmandmassessingmstudentmle

arning.mDisseminationmormsalemofmanympartmofmthismworkm(includingmonmthemInternet)mwillmdestroymthemintegritymofmthem
workmandmismnotmpermitted.mThemcopyrightmholdermgrantsmpermissionmtominstructorsmwhomhavemadoptedmFinancialmAcco
untingmTheory,mSeventhmEdition,mbymWilliammR.mScottmtompostmthismmaterialmonlinemonlymifmthemusemofmthemwebsitemismr
estrictedmbymaccessmcodesmtomstudentsminmtheminstructor’smclassmthatmismusingmthemtextbookmandmprovidedmthemreproduce
dmmaterialmbearsmthismcopyrightmnotice.

, Contents


Chapterm1 Introduction.................................................................................................. 1

Chapterm2 AccountingmUndermIdealmConditions ......................................................... 7

Chapterm3 ThemDecisionmUsefulnessmApproachmtomFinancialmReporting .................... 68

Chapterm4 EfficientmSecuritiesmMarkets ......................................................................129

Chapterm5 ThemValuemRelevancemofmAccountingmInformation ...................................153

Chapterm6 ThemMeasurementmApproachmtomDecisionmUsefulness .............................. 194

Chapterm7 MeasurementmApplications ........................................................................ 237

Chapterm8 ThemEfficientmContractingmApproachmtomDecisionmUsefulness .................. 285

Chapterm9 AnmAnalysismofmConflict ......................................................................... 321

Chapterm10mmExecutivemCompensation ....................................................................... 371

Chapterm11mmEarningsmManagement ........................................................................... 425

Chapterm12mmStandardmSetting:mEconomicmIssues ....................................................... 487

Chapterm13mmStandardmSetting:mPoliticalmIssues ......................................................... 527




Copyrightm©m2015mPearsonmCanadamI
nc.

,Scott,mFinancialmAccountingmTheory,m7thmEdition
Instructor’smSolutionsmManualmChapterm
1

CHAPTERm1m

INTRODUCTION

1.1 ThemObjectivemofmThismBook

1.2 SomemHistoricalmPerspective

1.3 Them2007-2008mMarketmMeltdowns

1.4 EfficientmContracting

1.5 AmNotemonmEthicalmBehaviour

1.6 Rules-Basedmv.mPrinciples-BasedmAccountingmStandards

1.7 ThemComplexitymofmInformationminmFinancialmAccountingmandmReporting

1.8 ThemRolemofmAccountingmResearch

1.9 ThemImportancemofmInformationmAsymmetry

1.10 ThemFundamentalmProblemmofmFinancialmAccountingmTheory

1.11 RegulationmasmamReactionmtomthemFundamentalmProblem

1.12 ThemOrganizationmofmThismBook

1.12.1 IdealmConditions

1.12.2 AdversemSelection

1.12.3 MoralmHazard

1.12.4 StandardmSetting

1.12.5 ThemProcessmofmStandardmSetting

1.13 RelevancemofmFinancialmAccountingmTheorymtomAccountingmPractice




1
Copyrightm©m2015mPearsonmCanadamIn
c.

, Scott,mFinancialmAccountingmTheory,m7thmEdition
Instructor’smSolutionsmManualmChapterm
1
LEARNINGmOBJECTIVESmANDmSUGGESTEDmTEACHINGmAPPROACHES

1. ThemBroadmOutlinemofmthemBook

ImusemFigurem1.1masmamtemplatemtomdescribemthembroadmoutlinemofmthembook.mSince
m themstudentsmtypicallymhavemnotmhadmamchancemtomreadmChapterm1minmthemfirstmcou
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ThemmajormpointsmImdiscussmare:

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basedmaccountingmismnatural.mImgomovermthemidealmconditionsmneeded
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uchmdetailmbecausemthismtopicmismcoveredminmgreatermdepthminmChapt
erm2.

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tingmproblemsmofmadversemselectionmandmmoralmhazard.mThesemprobl
emsmarembasicmtomthembookmandmImfeelmitmismdesirablemformthemstudent
smtomhavemam“firstmgo”matmthemmatmthismpoint.mImconcentratemonmthemint
uitionmunderlyingmthemtwomproblems.mFormexample,madversemselectio
nmcanmbemillustratedmbymaskingmwhomwouldmbemfirstminmlinemtompurchas
emlifeminsurancemifmtheremwasmnommedicalmexamination,mormwhatmquali
tymofmusedmcarsmaremlikelymtombembroughtmtommarket.mFormmoralmhazar
dmImtrymtompinmthemmdownmonmhowmhardmtheymwouldmworkminmthismcours
emifmtheremweremnomexams.

• Themenvironmentminmwhichmfinancialmaccountingmandmreportingmoper
ates.mMymmainmgoalmatmthismpointmismthatmthemstudentsmdomnotmtakemthi
smenvironmentmformgranted.mImdiscussmthemproceduresmofmstandardms
ettingmbrieflymandmpointmoutmthatmthismismreallymamprocessmofmregulatio
n.mInmthempast,mtheremhavembeenmwell-
knownmcasesmofmderegulation,msuchmasmairlines,mtrucking,mfinancialmi
nstitutions,mpowermgeneration.mHowever,mwemarementeringmwhatmismlik

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